11 Surprising Higher Education Expenses

The cost of college is on the rise, so families must plan for the future. If you’ve already set up an education savings account, you have confidence your child’s education future is on the right track. And if you haven’t started saving yet, you should consider socking away some for education, even if it’s a small amount each month.

If you save with a tax-advantaged plan, such as NC 529, the earnings grow tax-free, if they’re used for qualified education expenses. Common well-known examples of qualified expenses are college tuition, books, and room and board.

Not every higher education expense is covered by 529 plans. There will be some expenses, such as travel and dorm supplies, that families will need to cover on their own. Technically, you can make non-qualified withdrawals to pay these expenses. However, you will have to pay federal and state taxes on the earnings plus a federal income tax penalty of 10 percent.

To help families understand which expenses are covered by 529 funds and which expenses are not, we’ve created a list of higher education expenses you may not have thought about yet.

Qualified Education Expenses

Let’s start with college expenses that ARE considered qualified education expenses. You get the most bang for the buck when you use 529 funds to pay for these expenses:

1. Student Loan Payments

Most families use a combination of savings, parental income, scholarships, and student loans to pay for college. You can now use NC 529 funds to make student loan payments.

That’s right! A new federal law was signed in December 2019. The Setting Every Community Up for Retirement (SECURE) Act expands 529 plan benefits. The law allows account owners to withdraw up to $10,000 tax-free for student loan payments.

2. Study Abroad

The number of college students who apply for study abroad programs continues to increase every year. It’s very exciting that American students enjoy embracing different cultures. The most popular countries where students travel include Italy, Spain, and the United Kingdom.

Qualified study abroad programs can be paid for with 529 funds. If the student’s college will give school credit for the study abroad experience, it’s likely a qualified education expense. Double-check with program administrators before paying a deposit or making travel plans.

While 529 funds can be used for study abroad tuition, approved housing, and books, it won’t cover other costs like travel and activities.

3. Trade and Vocational Schools

What if your child decides that a four-year university is not for them? No problem! NC 529 funds can be used at any eligible educational institution. That means they can use the money to pursue a trade school program in construction, cosmetology, electronics, real estate, and much more.

4. Computer and Technology

Most students will need a computer in college. NC 529 funds will pay for a computer that’s primarily used by the student, along with internet charges and school-related software.

5. School Supplies

Beyond a computer and textbooks, a student may need other supplies to complete a college course. For example, a chemistry student may need lab supplies, or an art student may need paint, brushes, and canvas. These expenses are considered qualified education expenses.

6. Off-Campus Apartment

Many colleges require first-year students to live on campus in residence halls. But after freshman year, some students want to live in an apartment. No problem! Your 529 funds will cover many off-campus living costs.

Rent for the apartment and groceries are considered qualified education expenses if the student is enrolled at least half-time in school. Off-campus living costs also can’t exceed the school’s cost for on-campus room and board. Don’t forget to keep receipts and a copy of the apartment lease to submit for reimbursement.

Non-Qualified Education Expenses

Those were just a few of the qualified higher education expenses that 529 funds will cover that you may not know about.

Now, let’s talk about some college expenses that ARE NOT considered qualified education expenses. Withdrawing 529 funds for these expenses will incur a federal and state tax penalty.

7. Business Attire for Interviews or Internships

Most college students get by with jeans and t-shirts, so buying a suit for an interview, or several business outfits for an internship can get expensive. However, even though a student may need to buy new clothes for a school-related reason, they’re not covered by 529 funds.

8. Greek Life

Mom or Dad may have fond college memories of their days in a fraternity or sorority. The experience can cultivate lifelong friendships, leadership skills, and fun, non-academic activities. However, Greek Life expenses, such as dues, gear, and social events, are not considered qualified education expenses.

9. Campus Sporting Events

Does the university have an amazing football or basketball team? Students usually get cheap season tickets, but sporting events are not on the list of qualified education expenses. So, if it’s important to your student to be in the crowd for home games, consider asking Grandma to gift the tickets for a birthday or special holiday.

10. Decorating the Dorm Room

Students may think that watching television and playing video games (only during study breaks of course!) may be necessary, but televisions, gaming systems, and even a comforter for their bed are not qualified education expenses.

11. Trips Home

Whether your student is a 30-minute car ride or a three-hour plane trip away from home, travel expenses are not considered qualified education expenses. Getting them home for holidays and weekend visits could get expensive if they plan to attend an out-of-state school.

To cover some of these non-qualified expenses, students can work part-time during high school and summers to save for extra expenses to enhance their college experience. Parents and students can get more information about planning, applying, and paying for college at CFNC.org. Create a free account and take advantage of great resources including applying for financial aid, scholarships, a monthly budget calculator, and more.